Holdovers

What Are Holdovers?

In finance, the term "holdovers" refers to transactions — usually checks — that have not yet been processed. In most cases, the period of time in which checks are held as holdovers typically does not exceed one business day.

Understanding Holdovers

Holdovers usually occur when a bank does not have enough time to process all of the payments it has received before the end of a business day. They are typically found in large clearinghouse banks, and they are different from the holds placed by banks on out-of-state or third-party checks. In this case, the check is usually held over simply because it was received too late in the day for same-day processing.

For instance, a customer might bring in a large number of checks to be deposited near the end of a business day. Such a situation might produce holdover checks if the bank is unable to process them during that same day. Those holdover checks would then be bundled together and deposited during the following business day.

Special Considerations

When a bank has holdovers, it will provide the depositor with a deposit ticket processed on the date that it received the instruments. Nevertheless, this situation can give rise to holdover float, whereby the money represented by the holdover checks briefly exists in duplicate: once in the account against which the holdover checks are drawn, and a second time in the account into which they are deposited.

To avoid holdover float, some banks will post a debit to the account in which the holdover checks are to be deposited. When the holdover items are processed the next day, this debit will be zeroed out. Additionally, some banks will require customers who frequently cause holdovers to sign an agreement specifying the conditions of the holdover. Other banks, on the other hand, address this issue by refusing to allow holdovers at all. Instead, they simply instruct customers that holdover items will be processed on the next business day.

Managing Holdovers

Banks will typically only permit holdovers on behalf of customers with good credit ratings. When bank examiners see holdovers occurring, they typically take care to ensure that the holdovers are processed the next business day and that holdover debits are zeroed out regularly.

Real-World Example of Holdovers

Although holdovers are generally rare at individual banks, they are relatively common if viewed at the level of the overall financial system. For instance, the Federal Reserve has observed increased levels of holdover float on Tuesdays, due to the backlog of checks that were deposited but not processed over the preceding weekend. Similarly, holdover float is generally highest in December and January, due to unprocessed checks deposited during the holiday season. Temporary disruptions to banking hours, such as severe weather events, can also leave holdover floats in their wake.